Proposal to introduce Standard Clauses for new-build homes

24.06.19

The deadline is approaching for submission of views on a proposal paper for a Bill to establish standard missives for the sale of new-build homes.

MSP Graham Simpson is seeking views on whether legislation is needed to protect buyers of new homes who find themselves in dispute with their housebuilder over defects in their homes. Mr Simpson believes that the current protections offered by the building control process, by warranty schemes (such as NHBC) and by the Consumer Code for Housebuilders do not go far enough. In his opinion there are gaps in the protection which should be filled by the introduction of statutory standard clauses which must be included in any missives concluded between housebuilders and house buyers. He also suggests that a clear statutory route for redress for new home buyers should be established – possibly by the creation of a New Homes Ombudsman.

Standard clauses are not new in the Scottish residential market. In the sale and purchase of “second hand” homes, Standard Clauses agreed under the auspices of the Law Society of Scotland are now used almost universally as the basis for the missives of sale. In addition, Scottish New Build Standard Clauses were prepared by the Law Society in 2015 with the intention of providing similar uniformity for new build transactions. However, use of the New Build Standard Clauses has not become the norm in the new-build sector, with many builders (and especially larger builders) preferring to use their own style of offer to sell.  Although he recognises that terms vary from builder to builder, Mr Simpson’s concern is that these missives are often drafted without sufficient consumer protections to safeguard the buyer in the event of something going wrong with their new home. His proposed solution is to introduce compulsory standard clauses with greater consumer protections for buyers of new-build homes.

South of the border, a Westminster All-Party Parliamentary Group (APPG) for Excellence in the Built Environment put forward ten recommendations, including the standardisation of housebuilding sales contracts, introducing a New Homes Ombudsman, a Housing Complaints Resolutions Service and a Code of Practice on complaint handling. Although housing is devolved to the Scottish Parliament, Mr Simpson suggests that if the Scottish Parliament also adopts these measures, they will compliment those in his proposed Bill.

It is difficult to judge the extent of the perceived problem which the proposed Bill is intended to address. As the proposal paper itself notes, no in-depth analysis of defects in new-build properties has been undertaken.  Instead, the paper cites anecdotal evidence and a few high-profile cases.  At a time when new homes are desperately needed, it is important not to create a perception that defective workmanship and poor customer care are widespread – in 2018 alone, over 20,000 new build homes were completed in Scotland, the vast majority of which will have been of good quality.  Equally, however, valid concerns should be addressed, and introducing additional consumer protections may have the positive effect of improving consumer confidence.

The proposal paper makes it clear that the detail of any statutory standard clauses will be left to secondary legislation. However, one specific proposal is that buyers should have the right to carry out a full survey of their new home before completing the purchase – and should have the right to withdraw or delay completion if major defects are uncovered.  Would such an approach be effective?  As ever, the detail will be all important. Any standard terms will need to make a clear distinction between minor “snagging” issues on the one hand and major defects on the other.  Clear timescales will be needed to avoid undue delay.  Who will bear the cost of the survey?  Whether it is realistic to expect surveyors to identify major defects from a standard, non-intrusive survey once the house is complete is another question altogether.

Further clarity will be needed on other aspects. Would any standard clauses cover both snagging items and major structural defects?  What will be the role of new build insurance policies like NHBC will be following the introduction of the Bill?  And for how long will the envisaged consumer protection and redress remain available to buyers after completion of their purchase?

Whatever the clauses might say, if they were to become compulsory without the ability to amend them, the lack of flexibility could make matters difficult for new home sellers and buyers, as each plot or development will have its own specific issues. The House Building Federation (HBF) in England are to issue a formal report on to the APPG’s report and have set up a working group to ‘…simplify the legal process and create a clearer and simpler process for signing off new homes as complete’.  They have also commissioned an independent report on consumer redress for new home buyers.  It may be that the HBF come to an agreement on a framework of clauses which can be amended and added to provided that the meaning and intent of the clauses are not lost when they are varied.

If the right balance can be found, then standard clauses may well bring the benefits of simplicity and speed in concluding missives for new-build properties. A clear statutory route for redress for dissatisfied purchasers would also most likely be welcomed by builders and buyers alike if the parameters for complaints are well set out and the timescales for dealing with complaints are kept tight. No one will benefit from long, drawn-out complaints handling.

The consultation will run until Thursday 27th June.  If you have not already done so, we recommend that all interested parties provide their opinion on the consultation so that Mr Simpson will have the most information possible to consider and analyse before a final consultation is lodged with the Scottish Parliament.

If you would like to respond to the consultation, you can do so online or contact your usual Brodies contact who can help you to do so. The deadline for responses is 27 June 2019.